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More Jobs, Same Worries

Last month, when the employment report for September was worse than expected, I wrote that the best response was to withhold judgment until more data came in.

Sure enough, the jobs report for October, released on Friday, is unexpectedly good. The economy added 271,000 jobs last month, a sharp upturn from recent monthly tallies.

What to make of the see-saw? Unfortunately, it would be wrong at this point to equate an upturn in the number of jobs with an upturn in the economy. The best response is still to withhold judgment about the economy’s trajectory until more data comes in.

Here’s why: Job growth in August and September seemed too low relative to other economic data, a point examined in a recent report by Steve Blitz, chief economist of ITG Investment Research. Similarly, job growth in October seems too high. Averaged out, monthly job growth in August, September and October was a modest 187,000 compared to 235,000 in the past year — a clear, if mild, slowdown. At best, recent numbers are consistent with economic growth at the slogging pace of 2 percent to 2.5 percent that has been the norm for most of the recovery.

The inconclusive data on wage growth in October are another reason to question what the latest report is really saying. In a sure sign of economic underperformance, wages basically haven’t budged since the recovery began in mid-2009. In October, however, wage growth ticked up; overall, wages grew 2.5 percent over the past year. But no one knows if the uptick will be sustained, and even if it is, the current pace is well below the roughly 4 percent pace of wage growth that the economy could bear without setting off inflation.

The problem is that the Federal Reserve, itching to begin raising interest rates at its next meeting in December, seems disinclined to wait and see whether recent upturns in the employment data are actually sustainable improvements. If they act on their impulse to raise rates before wages have recovered, they will only lock in wage stagnation.

With the exception of the late 1990s, the Fed has long emphasized low inflation over low unemployment. That lopsided approach to policymaking has contributed to poor wage growth and widening inequality.

Is history about to repeat itself?

The jobs report for October was better than recent dismal reports. But the working people of the United States have yet to catch a break.